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Children: Poverty

House of Lords written question – answered on 8th May 2008.

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Photo of Baroness Corston Baroness Corston Labour

asked Her Majesty's Government:

Further to the Written Answer by Lord Davies of Oldham on 1 October 2007 (WA 242), what is the estimated total number of children who would have been in poverty in the United Kingdom, according to the European standard of less than 60 per cent of the median household income, in 2007 and 2008 (estimate), if the level of child benefit had been raised, in relation to the 1997 level (a) by 25 per cent. (b) by 33 per cent, and (c) by 50 per cent more than the rise equivalent to the rise in earnings; and what would have been the cost (1) in billions of pounds, and (2) as a percentage of gross domestic product, including and not including estimated savings accruing from consequential reduced costs in other family and child allowances.

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

Child benefit for the first child has increased by 70 per cent since 1997-98, corresponding to an increase of 13 percentage points above the rise in earnings and the Government are committed to increasing it from £18.10 to £20 by April 2009. Expenditure on child benefit has increased from £7,340 million in 1997-98 to a projected £10,950 million in 2008-09, a rise of £3,610 million.

Significant increases in support for low-income families with children, including increased child benefit, have helped to lift 600,000 children out of relative poverty since 1997, following a doubling in the previous decades. The Government have committed to halve child poverty by 2010-11 and to eradicate it by 2020.

The Government are committed to providing financial support based on the principle of progressive universalism. Child benefit underpins this approach, providing financial support to all families, but the Government also believe that more targeted support is needed to help those on the lowest incomes.

Estimates of costs of increasing the level of child benefit in relation to its 1997 level, (a) by 25 per cent, (b) by 33 per cent and (c) by 50 per cent more than the rise in earnings are set out in the table below, in £billion and as a percentage of GDP. Estimated costs are additional to what the Government have already spent in child benefit since 1997.

Cost of increasing child benefit
Earnings +25% Earnings +33% Earnings +50%
Gross Cost (change in child benefit) £ billion £l bn £1.4bn £2.2bn
% of GDP 0.1% 0.1% 0.2%
Net Cost (after taking into account changes in income-related benefits) £billion £l bn £1.4bn £2.2bn
% of GDP 0.1% 0.1% 0.2%
Gross Cost (change in child benefit) £billion £1.1bn £1.6bn £2.5bn
% of GDP 0.1% 0.1% 0.2%
Net Cost (after taking into account changes in income-related benefits) £billion £1.1bn £1.6bn £2.5bn
% of GDP 0.1% 0.1% 0.2%

Trying to model changes to the rate of child benefit on the level of children in poverty involves considerable uncertainty and is sensitive to factors such as sampling errors, the precise definition of household income, income equivalisation scales and other modelling choices. It is estimated that the same increases in child benefit in relation to its 1997 level, (a) by 25 per cent, (b) by 33 per cent and (c) by 50 per cent more than the rise in earnings may reduce the number of children living in households with income below 60 per cent of median income by (a) 100-150,000, (b) 150-200,000 and (c) 250-300,000.

The increase in child benefit since 1997-98 was derived using the average earnings index (AEI), and scaling AEI growth each year by either 25 per cent, 33 per cent and 50 per cent. Estimates were derived using 2005-06 Family Resources Survey data and are on a before housing costs basis, using OECD equivalisation factors.

The Government will continue to pursue a multi-faceted strategy to tackle child poverty, as set out in Ending Child Poverty: everybody's business (March 2008). This is based on financial support for families, work for those who can, tackling material deprivation and improving life chances for poor children.

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